Academic journal article Academy of Accounting and Financial Studies Journal

Persistence of Earnings after Ifrs Adoption in Banking Companies Listed on Indonesian Stock Exchange

Academic journal article Academy of Accounting and Financial Studies Journal

Persistence of Earnings after Ifrs Adoption in Banking Companies Listed on Indonesian Stock Exchange

Article excerpt

INTRODUCTION

IFRS is a topic warmly discussed in the last few years (Beckman, 2016; Ebaid, 2016), especially in Indonesia, because Indonesia has been planning to implement full convergence on IFRS since 2012. To implement international-based accounting standards is to increase international acceptance, thus reducing risk in international investment and creating relevant, reliable financial reports (Bertin & Moya, 2013; Ismail, Kamarudin, Zijl & Dunstan, 2013; Joshi, Yapa & Kraal, 2016; Qu, Fong & Oliver, 2012).

One of the changes occurring as the result of IFRS adoption is the emphasis on fair value (Negakis, 2013). Fair value means that a presentation is relevant, recent and conditional on a reappraisal of corporate assets. Lantto (2007) conducted a survey of managers, financial report analysts and auditors in Finland about the utility of IFRS in increasing the value of accounting information. The results show that financial reports based on IFRS can be relevant and reliable. Accounting information can be called relevant when it is able to strengthen or change the expectations of decision makers and it can be called reliable when it is trusted and when users depend on it.

Financial details reported by a company are important information for investors especially are the earnings (Espinosa, Maquieira, Diaz & Abarca, 2015). Investors make decisions partly because the total earnings show the company's financial performance and the persistence of earnings becomes relevant in this way (Dawar, 2014; Doukakis, 2010; Nichols & Wahlen, 2004), because investors are able to use present income for predicting future earnings (Bandi, 2012). In this way, investors have further information about corporate performance in the future and they are able to make better decisions on investment (Bandi, 2012).

This study is inspired by previous studies of IFRS, in particular, the work of Doukakis (2010), Atwood, Drake, Myers & Myers (2011) and Nicholas & Wahlen (2004). However, previous studies testing earnings persistence against IFRR show inconsistent results. Some studies of IFRS implementation have been conducted in developed countries. However, the implementation of IFRS has not been approached academically in Indonesia since its implementation in 2012.

LITERATURE REVIEW AND HYPOTHESIS DEVELOPMENT

IFRS and Its Implementation in Indonesia

For more than a decade, discussion and implementation of IFRS has been a hot issue in more than 100 countries (Beckman, 2016). IFRS is an international accounting standard issued by the International Accounting Standard Board (IASB). These standards are arranged by four major world organizations including IASB, the European Commission, the International Organization of Securities Commission (IOSOC) and the International Federation of Accounting Commission (IFAC).

IASB, earlier known as the International Accounting Standard Committee (IASC), is an independent institution for setting up global accounting standards that are highly respected, easily understood and unambiguous (Nugroho & Siti, 2012).

According to (Joshi et al., 2016) , global business and the irrelevance of country borders as the result of free trade means that a company's internal standards of high quality and its internal framework of regulation are the keys to economic growth. Therefore, global adoption of IFRS will become mandatory, so that all companies' accounts have the advantage of financial reporting to international standards (Ebaid, 2016; Joshi et al., 2016).

Indonesia, from the initial development of its own accounting standards, now heads to convergence with IFRS (Source: Indonesian Accountant Association, 2008). In Indonesia, during Dutch colonization, used Dutch-style standard "Sound Business Practices". In 1974, the Indonesian Accountants Association adopted an American standard known as "Accounting Principal" and in 1984, it was renamed "Accounting Standard". …

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